New Trough for Preferreds?

Doom! Carnage! Destruction! There have been better days, as Napolean said at Waterloo.

The market was down significantly today as inflation fears appear – for the nonce – to be affecting corporates as much as Canadas. PerpetualDiscounts now yield 5.85% as dividends, which (at the Ontario Interest-Equivalency Factor of 1.4x) provides the same after-tax income as interest of 8.18%. Long Corporate Bonds now yield a bit over 6.1%, so the interest-equivalent-spread is remaining fairly stable in its 190-210 basis point range.

CPD set a new 52-week low today, trading in a range of 17.44-66 and closing at 17.50-61, 6×250.

Assiduous, but gloomy, Readers will be fond of my article When Will Preferreds Recover?, in which I pointed out:

I have examined the last 14 years history of the BMO-CM 50 Preferred Share Index (since December 31, 1993) and the peak-to-trough performance of this index, from the peak at March 30, 2007 to November 30, 2007, is the worst on record. This period’s loss of 7.4% is unmatched by any other decline.

As a matter of fact, the previous worst peak-to-trough performance is that realized from March 30 to October 31 of this year. November’s poor returns were merely icing on the cake. The worst period previously, from the peak of January 1999 to the trough of February 29, 2000, experienced a loss of a mere 6.1%.

Daily figures for the BMOCM-50 are not available … not to me, anyway! But we can have a look at CPD as a proxy:

Total Return Comparisons
Month CPD
Total Return
After Expenses
After Fees
Total Return
After Expenses
Before Fees
December, 2007 +1.14% +4.50%
January, 2008 +0.00% +1.28%
February +2.17% +3.62%
March -2.90% -4.56%
April +0.00% +0.73%
May, 2008 +1.42% +1.39%
Six-Month Cumulative +1.76% +6.90%
June MTD -1.90% *
Total Cumulative -0.17% *

The MER on CPD is reported to be 0.45% p.a. Those seeking solace can add back a pro-rata share of this figure.

Malachite Aggressive Preferred Fund (“MAPF”) returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in MAPF or any other fund. For more information, see the fund’s main page.

A rough estimate of MAPF performance for the month-to-date is approximately: down 2.45% before fees and expenses. Expenses are capped at 50bp annually; fees are on a sliding scale depending upon amount invested. This figure is an estimate only and, even assuming perfect accuracy, does not necessarily reflect either the absolute or the relative figures that will be reported after month-end.

Long Corporates are reported to be down 1.09% for the month, down 2.57% for the calendar year to date (both figures represent total return of the DEX Long Term Corporate Bond Index).

HIMIPref™ Experimental Indices
Index Value
Ratchet 1,049.6 1,114.1 +6.15%
FixFloat 1,035.4 1,018.8 -1.60%
Floater 970.9 936.2 -3.57%
OpRet 1,031.8 1,056.9 +2.43%
SplitShare 1,018.5 1,050.4 +3.13%
Interest 1,065.7 1,118.3 +4.94%
PerpetualPremium 1,065.7 1,021.4 -4.16%
PerpetualDiscount 904.3 906.5 +0.24%

It is most interesting to see that PerpetualDiscounts have managed to stay a little ahead of the game through the period … but on November 30 they had been marked down pretty low!

There are a few blanks in this post. I’ll fill them in shortly. All done!

5 Responses to “New Trough for Preferreds?”

  1. […] Note that this is a hot issue because it appears the preferred share market has hit a new 15-month trough … particularly, I think, when today is finally […]

  2. lystgl says:

    Man if yesterday was bad, today’s been devastation.

  3. jiHymas says:

    Today is … something else. Down 76bp, according to the TXPR.

  4. […] day for preferreds, with the market down sharply (as noted by Assiduous Reader lystgl in the comments to “New Trough for Preferreds?”) on sharply increased […]

  5. […] , April 12, 2007. Well … I did beat the index in year to March 31, 2008 … but it wasn’t due to simple avoidance of those issues! The prolonged bear market in preferreds continues. […]

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